New Year’s resolutions often address behavior changes such as exercise and diet. But your financial health has a big impact on your overall well-being.
Here are four serious financial resolutions and one fun one to make in 2020.
Make a plan to reduce debt.
This is not as daunting as it sounds. Resolve to pay down debt with a financial plan. The plan needs to be realistic based on your financial situation. Determine a budget and set achievable goals. Create a document or write on paper your income vs. expenses. That will show you exactly what you need to do and help hold yourself accountable.
January also is when credit card bills come due after the holiday season of buying and giving. Don’t get discouraged or lose focus. Stick to your financial plan. If you are in a relationship, make sure both of you agree on the plan and follow it.
Increase 401(k) and savings contributions.
A 401k is a primary source for retirement savings. Challenge yourself in the new year like you do in the gym and go a little higher with your contribution. You’ll likely be surprised that it usually only takes a couple of paychecks to adjust.
Participants in retirement plans may have FOMO – fear of missing out on money. But this is your savings and retirement. While you may initially miss it from your checking account, you’ll be glad when you see the end results.
It doesn’t have to be extreme. Consider adding just 1% to your 401k contribution amount. It will benefit you greatly down the road.
Update beneficiary forms and begin estate planning.
Think about life changes such as children, marriage, divorce or even death. Estate planning is not a fun topic to talk about, but it’s a necessary one – and talking is not enough. Meet with a legal professional and financial advisor to determine what happens to your estate and who gets what.
Update your beneficiary forms, especially if your marital status has changed. You have to take the lead on this. A new spouse may not be the automatic beneficiary, nor are your children.
Talk to a financial advisor or your company’s retirement plan administrator about retirement accounts and insurance policies.
Make extra principal payments on your mortgage.
This is the least popular idea, because it has the biggest impact on your checking account. It also has the biggest impact on the bottom line because your mortgage is paid off sooner.
By making a single principal payment to your mortgage, you can shed about six years off the term of a 30-year mortgage. Every case is different, and it depends on your rate and term. Some couples select this type of payment for a “special occasion” gift. That may sound odd but watching your mortgage decrease faster might be the perfect present for both of you.
A financial planner can demonstrate how the numbers will make this happen. Trust me, it’s fun to see.
Pick something to save for such as a trip, experience or reward.
Experiences are even better than presents. Set this resolution for YOU! It could be a one-night getaway, weekend retreat or beach trip. It doesn’t have to be an extravagant trip to Europe. Pick something you know you will enjoy and is financially feasible in 2020. (After a full year of following your financial plan, the 2021 reward could be even better.)
Set a recurring trip with family, figure out what it costs, and keep that money in a savings account until you go. I spoke with a family who wanted to go on a cruise. When they walked off the boat at the end of the trip, they departed relaxed and refreshed because they knew they didn’t have to figure out how to pay for it. The trip was paid in advance.
For more information about financial planning, contact us today.